The price of political risk
International investors are turning to South Korean bonds in droves. But with spreads now tighter than they have ever been, is the market pricing in the risks of investing in the country? One serious threat is the political risk posed by its northern neighbour. Phil Moore reports
The reaction to Korean steel producer Posco's bond launched in early August typifies the buoyancy of the country's credit market. The $300 million 10-year Reg S transaction - led by ABN Amro, HSBC and UBS - generated demand of $750 million, despite pricing tightening to 40 basis points over mid-swaps (the cost of swapping between variable and fixed-rate payments for the most highly rated companies), equating to 96bp over 2016 US Treasury bond spreads.
That was an impressive outcome for an A2/A-
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